The Union Cabinet recently granted approval for a viability gap funding (VGF) scheme worth ₹3,760 crore to advance battery energy storage systems (BESS) development.
Viability Gap Funding (VGF) Scheme
- A project that is economically justified but not financially viable is supported by a VGF grant.
- In order to fund initiatives that fall under publicprivate partnerships, the VGF plan was introduced in 2004.
- The program is envisioned as a plan scheme to be managed by the Ministry of Finance, and budgetary allocations are made on an annual basis.
- A grant of this kind under the VGF is given as a capital subsidy to entice private sector participants to take part in PPP projects that would not otherwise be commercially feasible.
- Due to their lengthy development cycles and low expected future revenue streams, projects might not be commercially feasible.
VGF for Battery Infrastructure
- By providing financial support of up to 40% of the capital cost in the form of VGF, this program seeks to develop 4,000 megawatt hours (MWh) of BESS projects by the years 2030–31.
- It is anticipated to reduce the price of battery storage, increasing its usefulness.
- The plan, which makes use of renewable energy sources including solar and wind power, intends to give the general public access to safe, dependable, and affordable electricity.
How would it work?
- The program aims to achieve a levelized cost of storage (LCoS) of between $5.50 and $6.50 per kilowatt-hour (kWh) by providing VGF support.
- Thus, it would make using stored renewable energy a practical solution for controlling the nation’s peak power demand.
- Five stages of the VGF disbursement will correspond to major BESS project milestones.
Benefits to Consumers and Infrastructure
- Distribution firms (Discoms) will get a minimum of 85% of the BESS project capacity in order to guarantee consumer advantages.
- This approach avoids waste and improves the use of the transmission network, improving the integration of renewable energy into the electrical grid and obviating the need for expensive infrastructure modifications.
- By encouraging healthy competition and the expansion of the BESS ecosystem, this strategy attracts significant investment and creates opportunities for allied businesses.
